Online Dating and Investment Fraud: Always Check Your Sources

The allure of online dating and mobile dating apps is strong: according to the Pew Research Center, an estimated 15 percent of American adults have used these services, an increase of four percentage points from 2013. Despite its growing popularity, especially with the under-30 crowd and folks in their 50s and 60s, there are certain risks that go along with digital dating. Safety concerns. Loss of privacy. Fake or inflated profiles.

Keyboard Button: Online Dating
Before you invest with
any seller—even if it's
a family member or
someone you're dating—
you need to research
that person.

But did you know you should also watch your wallet while your heart wanders? You should—so do some checking before you trust someone with your heart, or your money. 
Delving into the world of online dating can expose you to a range of potential financial risks such as phishing scams, where con artists attempt to extract personal and financial information. With other frauds, like impersonation scams, the fraudster creates an online identity, develops a relationship and eventually tries to convince you to send money—perhaps for a ticket to visit or to cover some unexpected financial emergency. As the Federal Trade Commission (FTC) notes, some fraudsters go so far as to make wedding plans before vanishing into cyberspace. 

Now you can count investment fraud as an additional risk in online dating. 

The U.S. Securities and Exchange Commission (SEC) recently announced fraud charges and an asset freeze against a Connecticut man who is accused of defrauding investors—including six women he met through online dating websites. Instead of appearing to ask for money for himself, the SEC's complaint alleges that he persuaded these women, and more than 40 other people, to invest in his company, claiming it was on the verge of closing deals that would bring large payouts to investors. However, according to court documents, there were no such deals—and the man allegedly used the money for personal expenses, including $20,000 for an engagement ring for his most recent online sweetheart. 

In addition, according to the SEC complaint, he did not follow the federal securities laws in making the offer—and was not registered to sell investments. 

Fraud-Fighting Tips

Before you invest with any seller or investment product, follow these tips.

1. Research the person offering the opportunity. You can quickly check to see if someone is registered to sell investments through FINRA's free online tool, BrokerCheck, or the SEC's website. Do this research even if the individual is a friend, romantic interest or family member. 

2. Ask questions about the investment. Questions requiring facts and hard numbers help remove romance and emotion from the discussion. Ask as many questions as you want so you feel confident that you know what you're buying and understand the risks and costs. For example, you may want to ask the following:

  • What are the risks of this investment?
  • How much does it cost initially to purchase the investment?
  • What, if any, additional or ongoing costs will I have to pay?
  • How liquid is this investment? If I need to sell or cash in the investment, how readily can I do so?
  • What happens if I decide to sell or cash in my investment? Are there surrender charges? Other fees?
  • For what type of investor is this investment a good or bad idea? 
  • Is the investment registered? If so, with which regulator? 

If your romantic partner can't or won't answer your questions to your satisfaction, then the investment is probably not right for you. And be sure to get a second opinion from someone who has no connection to the opportunity.

3. Know the warning signs of fraud. These signs include promises of quick profits, “guaranteed” returns or pressure to send money immediately. Also, an investment professional should never ask to borrow money from you or encourage you to name them as a beneficiary or executor of your estate.

And when it comes to “romance scams,” you should steer clear of what's called affinity fraud. That's when you may be tempted to invest in something you hear about from friends, family, a group that you're affiliated with or a romantic interest. Our brains tell us that when people around us are all doing something, it must be okay. But this isn't always the case, especially with investing. You need to do your homework before determining whether an investment is right for you. 

If you ever think a claim about an investment might be exaggerated or misleading, you can send a tip or file a complaint with FINRA, or with the SEC

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